Thursday, January 20, 2011

Gas Prices and Development

The relationship between high gasoline prices and the decline of traditional suburban real estate development has long been established.  I've written about this problem for homebuilders and developers wedded to the classic subdivision business model for years.

As I write this, $4.00 per gallon gasoline is likely this coming summer, coincidently, the peak of the real estate residential sales season.

The ripples of this simple fact are dramatic.  For example, the homebuilders, many of them working in the suburbs, are still suffering, and badly.  2010 was the SECOND WORST year for new home construction in the last FIFTY YEARS.

High gas prices are only going to make matters much worse for suburban developers and especially those home owners attempting to sell suburban properties without access to public transportation as a realistic alternative to driving to work.

I have recently written about the deteriorating social and economic conditions in many American suburbs.  The lure of cheap homes, big backyards, great schools, and none of the street crime and urban decay of the big cities that lured homebuyers to suburbia from 1950-1980 is long gone.  Suburban white flight back to the cities is a reality which makes current investments in cookie cutter, "every house looks exactly the same" suburban subdivision properties at any cost a risky investment over the long term.

The above analysis has profound implications for investors and homebuyers everywhere.